Question

What are the implications for fund managers, if the market exhibits strong, semi-strong, or weak efficiency?

Answer 1

If the market exhibits weak efficiency, then the stock price includes all the information that can be derived from past data. Hence, in this case, future price cannot be predicted using past information.

In the case of the semi-strong form of efficiency, the stock price reacts to new information quickly. This indicates predictive analysis is useless as price adjust to new information quickly.

If the market shows strong efficiency then the stock prices reflect all information public and private information which are available to insiders only. Thus even insiders information cannot be used to predict the price of the stock.